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  • Rev Shark:

    This Bull Would Take Days to Kill
    12/5/2005 8:52 AM EST

    "Studies indicate that the one quality all successful people have is persistence. They are willing to spend more time accomplishing a task and to persevere in the face of many difficult odds. There is a very positive relationship between people's ability to accomplish any task and the time they are willing to spend on it."

    -- Dr. Joyce Brothers

    There is no question that the bulls have had a very successful run since mid-October. The big question now is whether they have the fortitude to persevere and keep this rally going. The higher the market goes the tougher it is to keep it moving steadily upward.

    It is impossible to look at the move over the past seven weeks and not think that the market is in need of a rest. We all know it, but the big question is whether we will get one, and if we do, how it will play out.

    But before we contemplate how the market may consolidate, let's consider the bearish scenario, which is that the market it topping out and about to roll over and go straight down. That's possible, but it is not a great bet at this point. There simply is too much momentum, too many folks who have missed this move and too many money managers who need to produce some performance before the year ends. These forces are going to keep a bid under the market and they aren't going to relent until buying the dips is punished a few times.

    Markets that go straight up like this one don't often just roll over and move straight down. The market participants who missed this rally are have been waiting for weakness so they can put capital to work aren't going to suddenly disappear on the first pullback.

    So let's put aside the idea that the market is going to fall apart at any moment. It is possible a top is in, but it is going to take a while for it to form and play out. What we need to look for now is how the market is going to deal with its overbought condition. It can do it by churning and going nowhere or by pulling back. A pullback isn't worrisome until it threatens to kill the uptrend, and that is going to take more than a couple days of weakness.

    It is very possible that a consolidation or correction will be rotational in nature. Money will move out of the most extended stocks and look for a home elsewhere. We saw that to some degree last week as metals and mining attracted money while retailers struggled.

    There is no question that we are at a tricky juncture. The trend is our very good friend and the bulls have the momentum but it is going to take an increasing amount of effort and persistence to stay successful. They can afford a rest but they eventually will have to go back to work or they will lose their edge.

    We have a slightly negative open shaping up. Oil and gold are strong and that seems to be putting a little pressure on things. Asian stocks continue to run but Europe is struggling.

    Gary B. Smith:

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